FeaturedInternationalVolume 14 Issue # 02

Turkish crash inevitable?

The crisis between the United States and Turkey has already weakened the North Atlantic Treaty Organization (NATO). The dispute has escalated after tit-for-tat sanctions and it is feared it will ultimately end the alliance and move both powers toward collision, which would have serious repercussions for the Muslim country, the region and the international financial system.

 

Both sides have started finding faults with each other after decades of alliance and shared interests. Turkey accuses the US of interference in its internal affairs, while the US has suddenly realized that Turkish President Tayyip Erdogan is acting the dictator and has deviated from his reformist path. Trump and Erdogan celebrated their friendship just a few months ago. Erdogan praised Trump as a blessing, while the US president said of his Turkish counterpart that he gets “very good grades” for how he is running his country. Since then, the relationship has soured. The two heads of state are at odds over the appropriate strategy in Syria, over the true circumstances behind the failed July 15, 2016 coup attempt in Turkey and over the nuclear agreement with Iran and Turkey’s planned acquisition of Russian missiles. More recently, their mutual antagonism has focused primarily on the American pastor Andrew Brunson, who is being detained in Turkey over charges that he had helped the people behind the failed coup.

 

There is a common belief in Turkey among officials and the public that the US and other NATO members are seeking to thwart the country from playing any role as an influential driver of geopolitics in its region and continuing to emerge as an economic power. However, US officials believe that Washington’s alliance with Ankara comes with costs that outweigh the benefits, with Turkey no longer representing the same strategic value to the US that NATO’s only Muslim-majority country did throughout the Cold War. The US believes that Turkey can be neglected from its strategic calculations without major setbacks to its interests. According to Turkish analysts, the Trump administration’s recent attack on the pretext of Pastor Andrew Brunson’s detainment was aimed at deliberately targeting the Turkish economy and currency. “With his tweets, Trump started a new round of trade wars against Turkey. He did not show any sign of respect to the rule of law in Turkey. Trump insisted that Brunson was an innocent person who was kept under house arrest unfairly. He does not want to wait until Turkish judges make their decision on the case, because he thinks he is powerful enough to target and pressure Turkey on the issue. What is happening to Turkey is not a singular, isolated event. The Turkish legal system may not be proceeding as fast as it is expected to be, but such an intervention complicated everything for the government in Turkey. Trump also targets the dignity of the Turkish people and decision makers, which is unacceptable no matter how much it costs Turkey,” wrote Khalid Al Jaber, an associate professor at the Political Science and International Relations Department at Ibn Haldun University.

 

In recent years, Tayyip Erdogan has broken from the reformist path while forging new alliances, especially with Russia and its strongman leader Vladimir Putin. He has jailed journalists, seized the assets of political opponents and crushed dissent while amassing complete control over the levers of Turkish power. He has run the economy like a patronage network, lavishing credit on companies controlled by cronies, while yielding growth through debt. His spending spree has bettered life for the working class Turks who make up his political base, erecting hospitals, schools, roads and other infrastructure. But he has fueled the construction boom by supplying government credits and guarantees that have encouraged private companies to take on alarming debts, wrote the New York Times in an editorial.

 

There are also fears the crisis is a disaster, not just for the people of Turkey, but also for the whole region and the world. Foreign banks, which have lent Turkey $265 billion, fear they will lose the money while economists are warning of the possibility of a chain reaction that could trigger a collapse of the international financial system just as the Lehman Brothers bankruptcy did in 2008. The situation is also wreaking havoc on the world’s security architecture by threatening NATO cohesion, particularly given that neither Trump nor Erdogan appear willing to stand down. Erdogan views the US sanctions as a conspiracy against Turkey and has described the moves as “economic war” and “economic terrorism. “Don’t forget, if they have their dollars, we have our people, our God,” the Turkish president said.

 

A break between the two countries would have a deleterious effect on the entire Western security architecture. In recent years, Turkey has been a participant in numerous NATO operations, including in Afghanistan and in the former Yugoslavia. Most of all, the country secures the alliance’s southeast flank, acting as a buffer between the West and the crisis-prone Middle East. The US and Turkey have NATO’s two largest armies and powermongers in Ankara and Washington have locked horns so tightly that, in the most extreme scenario, Turkey could actually leave the alliance. Erdogan also appears to be demonstratively seeking to close ranks with Russia’s Vladimir Putin. Several months ago, he even threatened that his soldiers in Syria could open fire on American troops. “Trump and Erdogan are gambling and the stakes are extremely high,” says Sinan Ülgen, head of the Istanbul-based think tank EDAM. “They don’t realize what’s at stake for both countries.” Erdogan, in any case, has his back up to the wall economically. And the temptation to distract from his own failings by launching attacks on others is great.

 

Turkey currently has an inflation rate of 16 percent. Electricity costs nine percent more than it did only a few months ago and the price of bread has risen by 15 percent. One in five Turks under the age of 25 is unemployed. Meanwhile, Turkish companies have accumulated more than 200 billion euros in debts, the equivalent of over a quarter of Turkey’s gross domestic product (GDP), and most of it is in foreign currencies, meaning the value of those debts is constantly rising as the lira plunges. The US sanctions function as an accelerant in the situation. Economists have already begun predicting the bankruptcies of major Turkish corporations, which would in turn lead to mass unemployment. And investment bank Goldman Sachs is warning that if the value of the lira continues to fall, the Turkish banking system could collapse. Turkey “has all the ingredients of the beginning of a failed state,” says Marie Owens Thomsen, chief economist at international asset manager Indosuez Wealth Management. Istanbul economist Hursit Gunes calls a crash “inevitable.”

 

Erdogan may have brought almost all state institutions under his control, but he has proven unable to find an answer to the economic crisis and is instead exacerbating it. His political collision course with the US is leading investors to ask if the Turkish president has lost touch with reality. Most economists agree that Ankara can only cushion the blow of the economic decline if the country’s central bank raises interest rates and the government curbs spending. But Erdogan wants to continue boasting of high growth figures to his voters. He claims that higher interest rates will lead to an increase in inflation — a mentality that shows only that he has no understanding of economics. His government is also investigating people who post negative comments about the Turkish economy on the internet.

 

Analysts see Erdogan’s economic system reach a dead end. He fueled the economic boom in the early years of his tenure largely by investing billions in the construction industry. His radical growth policy went well as long as the lira remained stable and capital continued flowing in from abroad. But now the country is caught in a downward spiral. Erdogan has further shaken investor confidence with his tirades against the West, the repression of opponents and his interventions in interest rate policy. Between 2015 and 2017, foreign direct investment fell by almost 35 percent to $11 billion and the rating agency Standard & Poor’s downgraded Turkey’s creditworthiness to junk status back in May. The result of the absurd measures is that observers fear the crisis in Turkey could spread to other countries.

 

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